China United Network Communications Limited (SHSE:600050) stock is about to trade ex-dividend in couple of days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase China United Network Communications' shares before the 30th of October in order to be eligible for the dividend, which will be paid on the 30th of October.

The company's next dividend payment will be CN¥0.0959 per share. Last year, in total, the company distributed CN¥0.15 to shareholders. Looking at the last 12 months of distributions, China United Network Communications has a trailing yield of approximately 2.9% on its current stock price of CN¥5.06. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether China United Network Communications can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China United Network Communications paid out 52% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (72%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that China United Network Communications's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, China United Network Communications's earnings per share have been growing at 16% a year for the past five years. China United Network Communications is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. China United Network Communications has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid China United Network Communications? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see China United Network Communications's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 52% and 72% respectively. Overall, it's hard to get excited about China United Network Communications from a dividend perspective.

In light of that, while China United Network Communications has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for China United Network Communications you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.